This page discusses how to identify where an adjustment should be made, if
there is more than one possible location.

Adjustments should be made to the specific data element that is
affected by the special circumstances, and the amount of the
adjustment should be based on the financial impact of the special
circumstances.

The Higher Education Act allows adjustments for a special
circumstance to be made to either the cost of attendance or the FAFSA
data elements. An adjustment to cost of attendance will generally have
a bigger impact than an adjustment to income, and an adjustment to
income will generally have a bigger impact than an adjustment to
assets (with student assets having a bigger impact than parent assets).
There are additional considerations affecting whether an
adjustment is made to
cost of attendance
or data elements.

Clearly, if the special circumstances relate to a particular data
element, one usually makes the adjustment to that data element. But
sometimes other considerations can warrant an adjustment to a
different data element. Also, some special circumstances relate to
more than one data element.

When making an adjustment to a data element, one possible
consideration is the impact of the adjustment on the EFC:

AGI, Worksheets A, B and C.
Increases to worksheets A and B increase total income, while increases
to worksheet C decrease total income. So adjustments implemented by
reducing AGI, increasing worksheet C, or reducing worksheets A and B
are all equivalent in impact.

Taxes Paid.
It is worth noting that the state and other tax allowance is
based on total income. So adjustments to AGI and/or the worksheets end
up reducing the state and other tax allowance. (Adjustments to earned
income affect the calculation of FICA tax.) Since the state and
other tax allowance represents an actual expense, some financial aid
administrators will adjust the taxes paid figure instead, or change
the adjustment to compensate for the reduction in the state and other
tax allowance. This is not quite kosher, unless the special
circumstance is related to taxes paid. But it is, practically
speaking, the only method of adjusting income that doesn't decrease
the state and other tax allowance.

Generally speaking, financial aid administrators are not supposed to
make adjustments according to their impact, since that treads very
close to making changes in the formula or trying to change the EFC
directly. So one should only adjust taxes paid, as opposed to the
Worksheet figures or AGI, when the unusual circumstance relates to
taxes paid. However, one can argue that an expenditure from after tax
income, such as medical expenses or elementary and secondary school
tuition, should not affect the state and other tax allowance. So the
rule of thumb is that adjustments that correspond to an expenditure
from after tax income should be made by adding the amount to taxes
paid. (Note that adjustments to the worksheets will also be made from
after-tax income, since the worksheets adjust total income and not
AGI.) On the other hand, adjustments that correspond to a reduction in
income, such as job loss, should be implemented through adjustments to
AGI or the Worksheets.

It is also worth noting that adjustments to AGI affect FISAP, so
many schools prefer to make adjustments to the worksheets in order to
minimize the negative consequences of the adjustments on campus-based
program allocations.

Another possible consideration is the nature of the expense. Each of
the worksheets has a different focus, so one might want to choose the
data element that has the greatest thematic similarity.

AGI. AGI represents taxable income before deductions.

Worksheet A. Worksheet A represents untaxed
income, with a special emphasis on the types of untaxed income
and benefits that are associated with lower income households, such as
the earned income credit (EIC) and welfare. Worksheet A is
distinguished from Worksheet B to allow financial aid administrators
to use a non-zero value in Worksheet A to distinguish the neediest
applicants.

Worksheet B. Worksheet B represents other untaxed
income and benefits, including tax-deferred income, child
support received, and cash support.

Worksheet C. Worksheet C represents exclusions from
taxable income. These are amounts that were included in taxable
income but which should be excluded from income for need analysis
purposes, such as student aid included in AGI and child support paid.

Most financial aid administrators like including adjustments on the
worksheets because it separates out the adjustments. This is easier
administratively, making it easier to track. In addition, some
families legitimately have no AGI (i.e., their income was low enough
that no tax return was required by the IRS), in which case an
adjustment to a worksheet or an increase to cost of attendance is the
only available mechanism for implementing an adjustment to income. (If
the family's income is low enough that they are not required to file
an income tax return, their income is likely below that of the IPA and
they may even qualify for automatic zero EFC, in which case an
adjustment to cost of attendance is the only way to increase their
financial aid eligibility. But financial aid administrators are
reluctant to make adjustments to cost of education for circumstances
that are not student-centric.) Also, making an adjustment to a worksheet
preserves the ability to match AGI on the FAFSA with AGI on the income
tax return. This will become more important as the US Department of
Education and the IRS are instituting a data match on AGI.

Despite the AGI-match issue, some financial aid administrators prefer
to make adjustments to AGI when the adjustment represents a change in
taxable income. For example, when the financial aid administrator
switches from prior tax year income to estimated award year income due
to job loss, the adjustment represents a change in taxable income.
In such situations the tax liability will also be
adjusted to reflect the change in taxable income, and changing the
AGI allows the new tax liability to correspond to the new AGI.

Many financial aid administrators prefer to include an adjustment as a
positive amount on Worksheet C instead of as a negative amount on
Worksheet B. This is partly because the applicant has to have
sufficient income on Worksheet B for the adjustment to offset and
partly because financial aid administrators like to focus on the positive.
Also, Worksheet C represents amounts that were included in taxable
income but need to be excluded from taxable income, and so is the
appropriate place to make adjustments that do not change the tax liability.

Some financial aid administrators, however, feel uncomfortable including a
miscellaneous adjustment on Worksheet C because it doesn't include a
catch-all line like Worksheet B. They feel that it is inappropriate to
call something a Worksheet C item if it is not one of the Worksheet C
items listed on the FAFSA. Worksheet B has two miscellaneous
catch-all categories, one for "any other untaxed income or benefits
not reported elsewhere on Worksheets A and B" and "cash received, or
any money paid on your behalf, not reported elsewhere on this
form". Worksheet C does not. So instead of including an adjustment as
a positive amount on Worksheet C, they include it as a negative amount
on Worksheet B or as a reduction in AGI.